Michael McGrath (Cork South Central, Fianna Fail) | Oireachtas source

It would appear that they are being exploited with the consent and blessing of the Government and the Central Bank. That is simply not acceptable. The purpose of the motion I have proposed is to put the spotlight on this issue with a view to putting pressure on the Government, the Central Bank and the banks themselves to bring an element of fairness to the pricing regime in respect of standard variable mortgages.

In November of last year, four of the banks appeared before the Joint Committee on Finance, Public Expenditure and Reform. We know from information provided to the committee that the circumstances we are discussing affect tens of thousands of families. The rates being charged cannot be justified on the basis of the evidence given by the banks. To put this issue in context, Permanent TSB told the committee that it has 79,100 variable rate customers with an average balance of €88,500. In addition, 60% of AIB residential mortgage customers, or approximately 130,000 customers, are on variable rates. In the case of Bank of Ireland, 33% of customers are in this category, representing another 70,000 cases. While Ulster Bank and Danske Bank have not provided data, we can safely assume there are more than 300,000 variable-rate mortgage customers in Ireland. That shows the scale of this massive issue for households across the country. We believe it firmly needs to be highlighted in the House. If the banks were to be much more transparent and to provide more relevant and timely data, it would be a good starting point. The Central Bank should insist on this and make the information available in an accessible format. It is not acceptable that we do not even have good data about the number of variable rate customers.

The families stuck on variable rate mortgages have benefited least, if indeed at all, from the current low interest rate environment in Europe. In fact, they have watched in absolute frustration as their mortgage rates have steadily risen as rates generally have fallen. The situation in which they are trapped is costing them hundreds of euro a year, but it receives little or no attention from the Government. At the moment, the standard variable rate that a customer with 20 years remaining on a €200,000 mortgage will pay as an existing customer is approximately 4.5%, depending on the bank the mortgage is with. Rates as low as 3.69% are available for new customers with a 20% deposit and the average tracker customer will pay approximately 1.15%. The existing customer is therefore paying €992 a year more than someone who can take up the offers available to new mortgage customers and €3,874 a year more than a family with a tracker rate. This shows the scale of the difference that families stuck on high standard variable mortgage rates are having to endure. In many instances, the annual impact is more than twice or three times the combined impact of the property tax and the water charges. These are huge sums of money to any family and rightly demand our attention in this House.

I anticipate that the response of the banks to this motion will be to state that standard mortgage rates reflect their cost of funds. It is worth noting what they told the Joint Committee on Finance, Public Expenditure and Reform last November in the documents they supplied in advance of the meeting. Permanent TSB said that the blended cost of funds is 1.74%. Bank of Ireland said that "for the 6 month to 30th June 2014 our cost of funds was 1.15%." AIB said that "for the 6 months to 30 June 2014 AlB's cost of funds was 1.64%." Ulster Bank said it was "not required to publish its accounting cost of funds and for reasons of commercial sensitivity [was] not in a position to provide this information." Therefore, rates of up to 4.5% are well in excess of the banks' cost of funds, according to their own data. The banks' arguments are bogus.

People should consider where the banks source their funds from. They can source funds from the ECB. The ECB rate, 0.05%, is at its lowest level ever. They can source their funds from the wholesale interbank markets. Again, record low rates of interest are being charged on the banks there. They can source their funds from the deposits and savings that the ordinary people of Ireland have lodged with their banks. Those people will know that the banks are paying little or nothing by way of interest to people who are saving in Ireland at this time. The cost of funds to the banks is exceptionally low and is in fact coming down. For that reason, there is no justification whatsoever for the massive margins that are being charged to people on standard variable mortgage rates.

According to a report published by the Central Bank in 2012, "it appears that some lenders are charging higher variables rates to compensate for the losses they are making on their tracker loans". The Central Bank suggested that the "risk with such a strategy is that it may be counterproductive and continue to exert upward pressure on arrears." In other words, the actions of the banks are putting a huge financial burden on families and may also prove counterproductive for the banks in the longer term by driving up arrears levels. In his address to the Joint Committee on Finance, Public Expenditure and Reform last year, the Governor of the Central Bank, Professor Honohan, accepted:

A widening of mortgage interest rate spreads over policy rates also occurred in the United Kingdom and in many euro area countries after the crisis but spreads have begun to narrow in the UK and elsewhere. Until recently, bank competition has been too weak in Ireland to result in any substantial inroads on rates.

My contention is that what the banks are doing cannot be justified based on their funding costs. They are simply gouging a vulnerable group of customers.

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